Economic Growth Definition
We define economic growth in an economy by an outward shift in its Production Possibility Curve (PPC). Economic growth is measured by the increase in a country’s total output or real Gross Domestic Product (GDP) or Gross National Product (GNP). The Gross Domestic Product (GDP) of a country is the total value of all final goods and services produced within a country over a period of time. Therefore an increase in GDP is the increase in a country’s production.
Growth doesn’t occur in isolation. Events in one country and region can have a significant effect on growth prospects in another. For example, if there’s a ban on outsourcing work in the United States, this could have a massive impact on India’s GDP which has a robust IT sector dependent on outsourcing.
Most developed economies experience slower economic growth as compared to developing countries. For example, in 2016, India had a growth rate of 7.1% while the American economy was only growing at 1.6%. This statistic can be misleading because India’s GDP was $2.264 trillion in 2016, while the US was $18.57 trillion. It would be more appropriate to compare their economic growth rates during similar periods in their history.
Economic Growth is not the same as Economic Development. Development alleviates people from low standards of living into proper employment with suitable shelter. Economic Growth does not take into account the depletion of natural resources which might lead to pollution, congestion & disease. Development, however, is concerned with sustainability which means meeting the needs of the present without compromising future needs.
Economic growth is one of the most important indicators of a healthy economy. One of the biggest impacts of long-term growth of a country is that it has a positive impact on national income and the level of employment, which increases the standard of living. As the country’s GDP is increasing, it is more productive which leads to more people being employed. This increases the wealth of the country and its population.
Higher economic growth also leads to extra tax income for government spending, which the government can use to develop the economy. This expansion can also be used to reduce the budget deficit.
Additionally, as the population of a country grows, it requires the growth to keep up its standard of living and wealth.